The stock market has turned on a dime a lot during 2023, and the trend continued on Thursday. Losses earlier in the week turned to gains on a topsy-turvy trading day, with the Nasdaq Composite (NASDAQINDEX: ^IXIC) finishing with the biggest percentage gains. The S&P 500 (SNPINDEX: ^GSPC) and Dow Jones Industrial Average (DJINDICES: ^DJI) also pulled out of negative territory at midday to post modest gains.
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| Index | Daily Percentage Change | Daily Point Change |
|---|---|---|
| Dow | +0.33% | +109 |
| S&P 500 | +0.53% | +21 |
| Nasdaq | +0.72% | +83 |
Data source: Yahoo! Finance.
It used to be that stocks with a single letter in their ticker symbols represented the bluest of blue-chip companies. More recently, though, newer companies have grabbed up some of these prestigious tickers, and that means that investors can’t necessarily rely on them to deliver consistent results year in and year out. On Thursday, both Wayfair (NYSE: W) and Unity Software (NYSE: U) saw their stocks drop sharply, belying the idea that they could evolve to become the leaders of tomorrow.
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Wayfair watches its business lose traction
Shares of Wayfair closed lower by 22% on Thursday. The online furniture retailer reported fourth-quarter financial results that showed a sizable exodus among customers and suggested a difficult future path to growth.
Wayfair’s quarterly numbers weren’t good. Total revenue fell nearly 5% year over year to $3.1 billion, with a 20% drop in sales from its international business. Losses widened by nearly 75% to $351 million, and even after accounting for extraordinary items, adjusted losses of $1.71 per share indicated how much pressure Wayfair’s business is facing. That closed a tough year for Wayfair, with 2022 revenue down 11% from 2021 levels and adjusted net losses of $7.71 per share.
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Fundamentally, Wayfair saw some troubling signs. Active customer counts dropped 19% year over year to 22.1 million, showing that millions of customers have stopped ordering from the furniture seller. Moreover, average orders per customer dropped to 1.81, and total order counts dropped 9% to 11 million.
Wayfair hasn’t made as much progress toward profitability as investors want to see in today’s market environment. Unless the furniture retailer finds a way to avoid macroeconomic difficulties and get customers to start ordering more again, Wayfair could continue to struggle.
Unity disappoints
Shares of Unity Software finished lower by 16% on Thursday. The 3D content software platform provider enjoyed reasonable growth in its financial results for Q4, but the pace of expected future gains was disappointing for investors.
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Unity’s Q4 numbers looked fairly strong. Revenue of $451 million was up 43% year over year, closing a year of 25% sales growth. That exceeded Unity’s previous guidance, and even better, Unity posted its first quarter of positive adjusted income from operations, reversing a year-ago loss with $13.3 million in income.
Some big customers came in Unity’s door, with its count of clients spending $100,000 or more on its platform jumping by 265 just in the past three months to 1,340. Dollar-based net-expansion rates rebounded to 116%, although that’s well below the 140%+ levels from 2021.
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Unfortunately, though, Unity wasn’t able to allay concerns about the impact of economic weakness on the advertising market. Even with projections for full-year revenue to rise 47% to 58% in 2023, shareholders appear dubious about the company’s prospects to make good on its promises. If the business environment doesn’t improve, then Unity could find it difficult to achieve its financial goals for the coming year.
